Diversified ETF Portfolios Based on Amerivest Model Portolios

Retirement investing is a long-term process. Amerivest-guided portfolios are provided by its investment advisory service. The service provides managed portfolios or model portfolios for a customer to manage her own portfolios. In this article, we construct a Amerivest Guided Portfolios Based ETF Plan that uses ETFs that represent the Amerivest model portfolio's asset classes. We then discuss how model portfolios constructed using these ETFs perform compared with benchmarks. Please note the ETFs in this plan are not the same as the ETFs used in Amerivest model portfolios. This plan uses the asset classes in a guided portfolio such as the Amerivest balanced portfolio:

Target Allocation

One can see that the above asset classes cover the following six major asset classes: US equity, commodity, foreign equity, REITs, emerging market equity, and fixed income. We then chose the following ETFs to represent the asset classes in the above portfolio.

Asset Class	Ticker	Name
LARGE GROWTH	VUG	Vanguard Growth ETF
LARGE VALUE	VTV	Vanguard Value ETF
Mid-Cap Growth	VOT	Vanguard Mid-Cap Growth ETF
MID-CAP VALUE	VOE	Vanguard Mid-Cap Value ETF
Small Growth	VBK	Vanguard Small Cap Growth ETF
SMALL VALUE	VBR	Vanguard Small Cap Value ETF
SMALL BLEND	IWC	iShares Russell Microcap Index
Foreign Large Blend	VEU	Vanguard FTSE All-World ex-US ETF
FOREIGN SMALL/MID GROWTH	GWX	SPDR S&P International Small Cap
DIVERSIFIED EMERGING MKTS	VWO	Vanguard Emerging Markets Stock ETF
REAL ESTATE	VNQ	Vanguard REIT Index ETF
COMMODITIES BROAD BASKET	DBC	PowerShares DB Commodity Index Tracking
Short-Term Bond	BSV	Vanguard Short-Term Bond ETF
Intermediate-Term Bond	BIV	Vanguard Intermediate-Term Bond ETF
Long-Term Bond	BLV	Vanguard Long-Term Bond Index ETF
Inflation-Protected Bond	TIP	iShares Barclays TIPS Bond
Intermediate-Term Bond	MBB	iShares Barclays MBS Bond
High Yield Bond	JNK	SPDR Barclays Capital High Yield Bond
WORLD BOND	BWX	SPDR Barclays Capital Intl Treasury Bond
Emerging Markets Bond	EMB	iShares JPMorgan USD Emerg Markets Bond

As of July 21, this plan investment choice is rated as average based on our plan rating methodology that measures the effectiveness of a plan's available investment funds. It has the following detailed ratings:

Diversification -- Rated as great (94%)
Fund Quality -- Rated as below average (26%)
Portfolio Building -- Rated as below average (23%)
Overall Rating -- Average (45%)

The asset classes are well chosen; on the U.S. equity side, it has growth and value styles to cover each capitalization. On the fixed income side, it has short, intermediate and long bonds to cover interest rate exposure while having high yield bonds to cover low end credit bonds that possibly can provide higher capital appreciation (with increased risk) and international and emerging market bonds.

The high diversification rating of these ETFs can be seen in the following performance comparison (VFINX: Vanguard 500 Index (proxy to S&P 500 total return), VBINX: Vanguard Balanced Index (60 U.S. stock/40 fixed income)):

Portfolio Performance Comparison

Portfolio/Fund Name	1Yr AR	1Yr Sharpe	3Yr AR	3Yr Sharpe	5Yr AR	5Yr Sharpe
VFINX	23%	151%	3%	15%	3%	8%
Amerivest Guided Portfolios Based ETF Plan Strategic Asset Allocation Moderate	19%	181%	3%	17%	6%	34%
Amerivest Guided Portfolios Based ETF Plan Tactical Asset Allocation Moderate	14%	125%	7%	44%	11%	76%
VBINX	16%	203%	6%	32%	5%	28%

Both strategic and tactical asset allocation portfolios out performed the two benchmarks by a meaningful margin. For more detailed performance comparison, refer here.

To summarize, Amerivest guided portfolios provide wide diversification coverage that can be used by investors to construct their own portfolios for their retirement plans (such as 401K) or brokerage IRA/taxable accounts.

Disclosure: I am long DBC, JNK.